What is an agency?
An agency is a relationship which arises whenever one person (the agent) acts on behalf of another person (the principal) and has the power to affect the principal’s legal position with regard to a third party.
Table of Contents
In practice, the two most important functions of an agent are:
- Making contracts on his principal’s behalf
- Disposing of his principal’s property
There are three parties to the contract of agency
- Third party (parties)
Methods of Creation of Agency
- By agreement or consent of the parties either express or implied
- Necessity – by the operation of the law under the doctrine of agency of necessity.
- By Ratification – retrospectively approving what someone has done on one’s behalf without prior authority.
- By Estoppel – Where a person having information that someone has been parading himself as his agent without his authority and failing to stop him; will subsequently be prevented from denying that such a person is his bonafide agent.
Duties of the Agent
- Obedience: The agent must act strictly according to the principal’s instructions.
- Care and skill: An agent professing a particular calling must show the degree of skill appropriate to his mandate. He must also exercise care in handling the business of his principal.
- Personal performance: Duty of non-delegation; the agent must perform personally and cannot delegate.
- Duty to Account: An agent must keep proper books of accounts on behalf of his principal. He must also render (present) this account to his principal at stated intervals.
- The agent also has a duty to keep the principal’s property distinct from that of the agent.
- Duty of good faith: An agent is not allowed to make a secret profit or receive a bribe.
- Duty of Secrecy: An agent must keep his principal’s affairs secret
- Full performance: Agent has duty to perform fully according to terms of the agreement.
- An agent must communicate all material facts to his principal with reasonable diligence.
Duties of the Principal
- Indemnity : The principal is expected to reimburse the agent on any expense he incurs in the performance of his agency
- Remuneration: The principal must pay the agent all commissions and remunerations due to him.
- Performance: The principal also has the duty to perform fully according to the terms of the agreement.
- The duties of the agent are the rights of the principal
- The duties of the principal are the rights of the agent
In addition to the above, the following right of the agent must be noted
LIEN: An agent has the right to retain possession of the property of the principal as security for payment of a debt (e.g. his commission)
Method of Termination of Agency
- By agreement between the agent and the principal
- Revocation of the agent’s authority by the principal
- Renunciation of the agent’s authority by the agent himself
- Full Performance – i.e. completion of the agent’s assignment
- Death of either party
- Insanity of either party
- Bankruptcy of either party
- Passage of time: Where an agent is appointed for a fixed period of time, the expiration of that period terminates his authority whether the agent has completed his assignment or not
- Frustration: e.g. changes in the law, subsequent illegality, destruction of the subject matter of the agency etc
GENERAL EVALUATION QUESTIONS
- List eight means of payment in business
- Give five reasons for the protection of consumers
- State five measures taken to protect consumers
- What is a channel of distribution
- Explain five advantages of home trade over foreign trade
- List three ways by which an agency can be created
- State four rights of the agent